WSJ: Big Oil curbing the growth of Ethanol
There is a very interesting story in the front page of today’s Wall Street Journal about how Big Oil is proving to be an obstacle to the growth of Ethanol. The story can also be found online here.
However, before I get into the story let me first post my views on Ethanol:
If you have been following FinancialNirvana.com then you know that early last year I was very enthusiastic about ethanol, both as an investor (did pretty well with PEIX) and as an environmentalist. However, for a while now I just don’t think ethanol is the answer. There are too many shortcomings with ethanol (corn based) to be used as a fuel and let’s not get into cellulosic ethanol because I just don’t know when it will be feasible to be mass produced. Ethanol as an additive to gasoline is fine and should be promoted but filling up E85 at your local gas station just doesn’t make sense to me right now. Corn has turned into a cash crop and every farmer now wants to grow corn. Politicians (both sides) are behind it because they get votes from farmers and they can go on campaigning that are helping United States get rid of its addiction to Mid-East oil. The big three automakers (are they still big three?) in Detroit are behind it because they produce trucks and SUV’s that run on E85 and it doesn’t take any kind of technological marvel to produce automobiles that run on ethanol. How many people are really willing to pay extra for a gallon of E85? Now there is a need for ethanol but if people really think that one day we won’t need to import oil because of ethanol then they are just dreaming. Maybe it will be possible with cellulosic ethanol but we don’t know yet. The best way to utilize ethanol now is as an additive to make gasoline burn cleaner and this is already a practice in a lot of states. If the politicians are really serious about ethanol then pass laws at the federal and state level that make it mandatory in every state to add 10% ethanol in every gallon of gasoline. This way there won’t be a need for special infrastructure created to serve ethanol directly to consumers. Ethanol will be mixed with gasoline at an early stage by oil companies and then sent to gas stations for consumers to fill up. Once that’s done, do some independent studies and based on the results keep increasing the 10% limit.
Now forget about what I think because no matter what I think the story in today’s Wall Street Journal about Big oil doing it’s best to be an obstacle to the growth of ethanol is kind of sad.
Following is the summary of the WSJ article titled, ‘Fill up with Ethanol? One obstacle is Big Oil’ by LAURA MECKLER.
- Oil company policies are making it almost impossible for service stations to carry E85 ethanol (85% ethanol and 15% gasoline).
- The article also touches on the fact that the demand might not be there for E85 because it costs more and would limit service-station owners’ enthusiasm for spending on the equipment needed to offer E85 even if the policies of the oil companies were not a factor.
- Service Station franchises are required to purchase all the fuel from the oil company and since oil companies don’t offer ethanol the service stations can’t sell them either.
- Contracts sometimes limit advertising of E85 and restrict the use of credit cards to pay for it. Some require that any E85 pump be on a separate island, not under the main canopy.
- Exxon Mobil Corp.’s standard contract with Exxon stations bars them from buying fuel from anybody but itself, and it doesn’t sell E85.
- A ConocoPhillips memo to franchisees says the company doesn’t allow E85 sales on the primary island, under the covered canopy where gasoline is sold. Stations must find another spot.
- A Chevron Corp. agreement with franchisees also appears to discourage selling E85 under the main canopy.
- Chevron’s agreement with station owners recommends they install new pumps and tanks at their own expense if they want to stock E85. This is an additional cost for gas station owners.
- BP (so called the most environmentally friendly Big Oil) has guidelines for stations that carry the company name bar any mention of E85 on signs on gasoline dispensers, perimeter signs or light poles. The stations also can’t let buyers use pay-at-the-pump credit-card machines.
I don’t have a position in any ethanol or Oil company
April 3rd, 2007 at 5:14 am
The ethanol promise is real, the US has not perfected the production yet. I think it is a shame companies are still pouring in millions to invest in corn-based ethanol production. I wrote a post awhile ago on the decentralization of alternative energy. The main premise is that the ultimate cost and availability of ethanol will rely on local feedstocks. I think local government should take a role in the ethanol play and start localizing ethanol production to promote local industry and the use of local feedstocks. This is the kind of kick in the pants cellulosic ethanol needs.
The challenge ethanol has against Big-Oil is a very important topic. Ethanol is being pitched as our fuel panacea, but no one has considered the distribution end, only the supply end. Now we have a situation where fuel stations cannot afford to offer ethanol as well to to the unsubsidized cost of converting their facilities. I wrote last night, “How Ethanol Will Fight Big-Oil”. I outlined a couple strategies on how investors could complete the missing link in the ethanol supply chain.
The US govt has focused on creating the supply and hasn’t thought enough about the end-consumer distribution. I think this is the last frontier investors have to play in to secure their ethanol investment. 70% of ethanol pumps are in the corn belt, while more than half of the US population lives on the coasts. Lets get those supply and demand curves at least somewhat together!
I comment regularly on the business/investor side of alternative energy on Energy Spin: Alternative Energy Blog for Investors-Served Daily
Cheers,
Francesco DeParis
April 11th, 2007 at 6:44 pm
Please check out this link:
http://environmental-economics.blogspot.com/search/label/Corn%20Ethanol%20Critiques
Corn ethanol utilizes fertile soil for fuel rather than food, wastes water on fuel, barely provides a net energy gain, increases smog vs. gasoline, slightly decreases some GHG vs. gasoline, cannot be transported long distances with current pipelines, increases pressure to use land set aside for conservation and increases food-price inflationary pressure.
Corn ethanol is unsustainable, unethical and a poor use of government and private resources.
May 4th, 2007 at 7:57 am
Although I am for reducing our dependence on Oil, Foreign or Domestic I am not convinced Ethanol is the way to go. It is expensive to produce, provides 25% less energy and damaging to current vehicles. It even reduces your mileage so why would we want to spend more for less? If we can produce ethanol without affecting other areas like the price of feed for cattle and by utilizing various bases and not just corn. There should be a concerted effort in not just the fuel we burn but increasing the efficiency of the engines ability to harness the thermal energy from the fuel.